Making Tax Digital (MTD) is a government initiative which will require businesses to keep digital records and make submissions to HMRC electronically using compatible software.
‘Making Tax Digital for Income tax self-assessment’ or ‘MTD ITSA’ will replace the current annual self-assessment tax returns and instead businesses will submit quarterly returns to be filed throughout the year. Those who are required to file quarterly returns will receive an estimated tax calculation based on the information submitted to help budget for their tax.
When will MTD for Income Tax be introduced?
Sole traders with a gross annual income of more than £10,000 (this is income not profit!) will need to comply with the MTD ITSA rules from 6 April 2024.
Landlords with rental income of more than £10,000 will also be required to comply with the MTD ITSA rules from 6 April 2024.
Those who have a turnover of less than £10,000 will remain under the current self-assessment system.
General partnership will fall under MTD ITSA from 6th April 2025 if their income is over £10,000.
The £10,000 is the total turnover combining all sole trader income and rental income, for example:
If a sole trader hairdresser has an annual income of £8,000 and £4,000 gross rental income then they would require recording each source of income under MTD ITSA because their combined income is more than £10,000.
Filing requirements and obligations from 2024:
Separate quarterly returns are required for each source of income. So based on the example above, this means the hairdresser will be required to file 8 quarterly returns throughout the year.
Then an End of Period Statement (EOPS) needs to be filed by 31st January following the end of the relevant tax year. The EOPS will provide details of the amounts under income and expense categories, adjustments to figures such as capital allowances and expenses to be disallowed.
After the EOPS is then the Final Declaration which also needs to be filed by 31st January following the end of the relevant tax year. This declaration will finalise your end of year position for tax and determine what tax liability is owed. It will bring together other sources of under not required under MTD ITSA such as bank interest, gains and dividends.
Currently, the tax liability due date will remain the same and will need to be paid by 31st January following the relevant tax year.
What action can we take now?
Make sure you have a reliable internet connection.
Start looking at suitable software which meets the needs of your business, please give us a call if you would like to discuss this further.
We would recommend moving over to software from April 2023 to allow you time to learn the processes of recording the transactions, make mistakes all without the worry of the quarterly filing deadline.
More to follow…. HMRC are currently running a limited pilot for MTD ITSA and this is helping to identify issues and concerns along the way before the requirements are compulsory.
We will be issuing more guidance and blogs on this in the New Year along with software recommendations, course dates for software training and support packages.